Retirement prospects

Medicare premiums than retirement !

There is no majority in Congress at present to approve the tax increases that will be needed to boost the funds. Even then there is a chance that more of the funds will be directed towards Medicare premiums than retirement.

Over 50 retirement prospects

The recession came at exactly the wrong time for those American citizens that had just reached middle age. The few years between 2008 and 2013 were ones where the economy was stagnant, real estate values dropped and unemployment took hold. The recovery has been slow and although growth is continuing those years damaged many who had been hoping that their retirement investment would continue to grow. In the preceding years everything had looked so good with few recognizing there was a problem looming. Collateralized Debt Obligations however were hiding toxic debt and when the Crisis struck it took no prisoners.

Even now there are many who have not recovered to their pre-recession level despite the fact that unemployment has fallen from its peak of double figures to below 5%. There are others that have never made good retirement provisions. It is worth looking at the present position for those in their 50s bearing in mind that although the Social Security System does provide some support, it was never intended to play other than a supporting role for those in retirement.

Retirement Needs

As people are living longer, the retirement fund that they will need to live comfortably inevitably increases. Different people get their happiness in different ways. Some don't need a huge amount of material things to be happy but they must be able to pay their bills. Others that have been used to an extravagant lifestyle are likely to be very unhappy if suddenly their standard of living has to fall dramatically.

The problem for those without good retirement provisions and relying largely on Social Security is that even now the benefits are not particularly big and the future is uncertain with estimates that without additional funding benefits will need to be cut by as much as 25% by 2030.

The figures tell the story

The average retired couple gets just over $2000 a month from Social Security. That contrasts with the average monthly income earned by an American household of $4500. Even more worrying is the figure of the average monthly expenses of a retired couple over 65 of $3450. It doesn't get any better. Sometimes that average couple will get automatic deductions from that $2000 a month; medical insurance premiums are regularly taken off the check before the final amount is transferred into the recipient's checking account. Surcharges on premiums may also be deducted which is a concern because there is no annual calculation on the inflation impact on income limits. It is possible that those premiums will take an ever increasing amount out of the benefit check.

While Transamerica's recent study shows that the average household retirement savings of those 50 and older is $135,000 the gulf between the worst and best scenarios is stark. Unmarried citizens have an average below $50,000 while married couples average $177,000.

Is there any more compelling reason for saving than the content of the last couple of paragraphs?

If you are in your 50s you should be earning more than you earned earlier in your career. If you fall into the group with a poor retirement fund you may have the potential to save as long as you are prepared to make some fairly basic changes to your life. If you don't think it is possible or you decide against doing it, you will certainly find problems in retirement even if you have real estate that you can sell to help you. You will still have to live somewhere, perhaps by twenty years or more.

You should look at your finances including your retirement savings. While the 401ks have not performed particularly well in recent years, largely because of the recession things should be improving.

In practical terms what does that mean?

Someone who is 50 and currently has $100,000 saved towards retirement who is putting $18,000 into a 401k will have over $650,000 by the age of 65 at an annual growth of 6%. If he or she can take advantage of that extra $6,000 a year the figure goes up to almost $800,000. The assumption of growth is realistic but the point about a 401k is that there are no guarantees and employers while contributing have no risk; the risk belongs to the individual with the 401k. It does mean that ordinary people may need regular advice.

If they are nowhere near the $18,000 they may need to look at their finances in general and try to cut out waste. That is everything from not checking whether they have competitive insurance, telephone and utility services to cutting out expensive debt, typically interest on credit card balances. Credit card debt should certainly be paid off because it is sheer waste. A personal loan to pay off balances is a much better financial management tool to use and is for bad credit people can provide these kind of funds. If you can put the savings into retirement you can see how your future can improve.

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